(Adds details about the company's business segments, quotes from the conference call.)

By Bob Tita

Eaton Corp.'s (ETN) second-quarter profit rose 14%, but revenue dropped as weakening demand from overseas markets caused the company to scale back its revenue and earnings forecasts for 2012.

The diversified manufacturer's second-quarter profit topped analysts' expectations. Improved margins and a lower tax rate offset lower revenue from a year earlier. The company attributed the lower revenue to slower economic growth in China, India and Brazil, as well as uncertainty in Europe caused by the ongoing sovereign-debt crisis. Unfavorable currency exchange rates also trimmed profit from the quarter.

"The big theme here is that U.S. markets stay strong, but for non-U.S. markets [there's] not much growth there," said Chairman and Chief Executive Alexander Cutler during a conference call Monday with analysts. "Global growth has clearly slowed. The European and Chinese recovery are pushed out to 2013."

The Cleveland company now expects overall sales this year to increase 3% to 4% over 2011, down from the 5% growth predicted in April. The company also revised its full-year profit guidance, calling for earnings of $4.20 to $4.50 a share. In April, Eaton said it expected per-share profit of $4.30 to $4.70. As a result, the midpoint of Eaton's profit range dropped to $4.35 a share from $4.50 previously.

Eaton makes equipment used in the distribution and control of electric power, truck transmissions and components and systems for hydraulic equipment, automobiles and passenger jets. Because of the scope of Eaton's business activities, the company is often considered a window into capital-equipment manufacturers such as Caterpillar Inc. (CAT), Deere & Co. (DE), Paccar Inc. (PCAR) and Boeing Co. (BA)

In May, Eaton agreed to acquire electrical-products company Cooper Industries PLC (CBE) in a roughly $11.8 billion cash-and-stock deal. The transaction will require approval from the two companies' shareholders.

Eaton's stock has fallen almost 18% in the past three months amid concerns about the outlook for manufacturing. But the shares recently were up 6.1% at $41.45 as investors appeared to take comfort in Mr. Cutler's confidence that Eaton will be able to continue to drive margins higher, despite slower end-market demand.

"We have evidenced our ability to our grow in these markets," he said. Eaton's second-quarter operating margin rose to 14.7% from 13.9% a year earlier and 13.8% in the first quarter.

In Eaton's electrical Americas unit--the company's largest business segment--second-quarter operating profit rose 32% to $192 million, as sales grew 10% to $1.13 billion. The unit's operating margin rose to 16.9% from 14% a year earlier. Eaton attributed the improvement in the business to an increase in spending on non-residential and residential construction.

Profit from Eaton's electrical business in the rest of the world fell 29% from a year ago to $55 million, while sales slipped 13% to $683 million. The company said unfavorable exchange rates accounted for five percentage points of sales decline. The company also said sales continued to deteriorate in Europe and China.

In the hydraulics unit, profit rose 5% to $126 million as sales climbed 6% to $769 million. Sales to the U.S. farm and construction-equipment sector rose 7% in the quarter, offsetting lower sales overseas.

In Eaton's truck business, second-quarter operating profit was flat from a year ago at $120 million. The unit's operating margin, however, rose to 19.2% from 17.8%, allowing Eaton to overcome a 7% decline in truck unit sales to $625 million. The company reported a 20% increase in hydraulics sales in the U.S., but sales to Brazil's truck and bus market slumped 33% during the quarter.

Overall for the quarter ended June 30, Eaton reported a profit of $382 million, or $1.12 a share, compared with a year-earlier profit of $336 million, or 97 cents a share. Stripping out acquisition- and integration-related costs, earnings rose to a record $1.15 a share from 97 cents a year earlier. Analysts polled by Thomson Reuters expected the company to earn $1.09 a share. Revenue slipped 0.5% to $4.1 billion, short of the $4.24 billion expected by analysts.